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Xcel Energy Inc  (NASDAQ:XEL)
Q4 2018 Earnings Conference Call
Jan. 31, 2019, 10:00 a.m. ET

Contents:

Prepared Remarks:

Operator

Good day and welcome to the Xcel Energy 2018 Year End Earnings Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Paul Johnson, Vice President of Investor Relations. Please go ahead, sir.

Paul Johnson -- Vice President of Investor Relations

Good morning and welcome to Xcel Energy's 2018 year-end earnings conference call. Joining me today are Ben Fowke Chairman, President and Chief Executive Officer; and Bob Frenzel, Executive Vice President and Chief Financial Officer.

In addition, we have other members of the management team available to answer your questions. This morning we will review our 2018 results and update you on recent business and regulatory developments. Slides that accompany today's call are available on the website.

On today's call we will discuss certain ongoing earnings metrics that are non-GAAP measures. Comparable GAAP measures and reconciliation are included in our earnings release. As a reminder some of the comments used during today's conference call may contain forward-looking information. Significant factors that could cause results to differ from those anticipated are described in our earnings release and our filings with the SEC.

I'll now turn the call over to Ben.

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

Well thank you Paul and good morning. And I say good morning, but as you all probably know it is brutally cold here in Minnesota and I'd like to thank the men and women of Xcel who worked so hard to keep the gas flowing and the electricity on over these last few days. I'd say with just a few exceptions our system has held up remarkably well and it's due to the dedication and commitment so thank you. For 2018 was an excellent year with a long and impressive list of accomplishments. Let me share a few of them with you.

We reported ongoing EPS of $2.47 in 2018 and this was our 14th consecutive year of meeting or exceeding our earnings guidance. We increased our long-term EPS growth target rate to 5% to 7%. We raised our dividend by $0.08 which represents the 15th straight year we've increased our dividend. We completed our equity issuances for the five year forecast period and don't plan any additional equity beyond our dividend reinvestment and benefit programs.

Our stocks hit an all-time high closing price of $53.68 in December. We secured approval for over 1,000 megawatts of new wind in Texas and New Mexico, our Colorado Energy Plan and 300 megawatts of wind in South Dakota. We completed construction of 600 megawatt Rush Creek wind farm on time and under budget. We reached agreements to purchase the 760 megawatt Mankato natural gas combined cycle plant for $650 million and to acquire 70 megawatts of repowered wind farms for a $135 million. We expect both acquisitions that we approve later this year. Our nuclear plants combined to achieve our capacity factor of almost 96% while reducing O&M cost by almost 3%.

We followed an electric vehicle pilot program in Minnesota. We resolved tax reform proceeding in most jurisdictions with the final resolution in North Dakota expected later this year. I'm also very proud that our actions have been noticed by others, resulting in numerous awards, including being recognized by Fortune magazine as one of the world's most admired companies for the fifth consecutive year. Being honored by the Military Times as Best for Vets Employer for the fifth consecutive year and being named utility of the year by Utility Dive. So 2018 was a great year, but we're now focused on 2019 and beyond.

Leading the Clean Energy Transition continues to be a strategic priority for us as we carry out Xcel Energy's vision to be our customers' preferred and trusted energy provider, also helping us to achieve two other strategic priorities. Keeping our customer bills low and enhancing the customer experience. We're a national leader in wind energy through our steel-for-fuel strategy which adds renewables while at the same time lowering bills.

As a result we've made outstanding progress achieving a 39% reduction in carbon emissions from 2005 levels. Well we want to do even more which is why we set a vision to reduce carbon emissions by 80% by 2030. Longer-term we expect to deliver our customers a 100% of carbon-free energy by 2050. These are the most ambitious carbon goals within the electric power industry. And I'm confident with supported public policy we can achieve the 80% interim goal while keeping our bills affordable and our product reliable.

Technologies come a long way in the last 10 years and it gives me confidence that our 100% carbon-free goals can be met as well. We look forward to working with our regulators, legislators and stakeholders to implement our plans across the jurisdictions we serve. Also very focused on our customers, earlier this month we entered into agreements to provide electric service to a proposed new Google data center located on property adjacent to our Sherco plant in Minnesota.

As you may remember back in 2015 we announced our intention to close two of the Sherco coal units. This particular location for the new data center will create jobs bring investment to the state and benefit all of our customers. And consistent with our goal to lead the clean energy transition we are planning to serve the data center's energy needs with 100% renewable energy. And I believe our environmental leadership will lead to more economic development opportunities overtime. We also recently filed to expand our pilot Renewable Connect program in Minnesota. Renewable Connect allows customers to choose how much of their energy comes from renewable sources. Been extremely popular and has commission approval in Minnesota, Colorado and Wisconsin. This is yet another way for us to add renewable energy and meet the needs of our customers. And importantly Renewable Connect is not negatively impact the bills of nonparticipants.

We anticipate the future expansion at Google and in Renewable Connect program will create potential renewable ownership opportunities for Xcel.

So with that, let me turn the call over to Bob who will provide more detail on our financial results and outlook and a regulatory update. Bob?

Robert Frenzel -- Executive Vice President and Chief Financial Officer

Thanks Ben, and good morning everyone. My comments today will focus on full year 2018 results. For details of our fourth quarter results please see our earnings release. As Ben discussed we realized another strong year of our operational and financial performance. We recorded 2018 ongoing earnings of $2.47 per share compared with $2.30 per share in 2017, representing the top end of our original guidance range of $2.37 to $2.47 per share.

Weather was certainly a positive factor contributing $0.07 per share compared to normal in our annual results. We also incurred additional O&M expense which offset the weather benefit. Looking at the income statement the most significant drivers for the year include higher electric and natural gas margins which increased earnings by $0.44 per share largely due to favorable weather and strong electric and natural gas sales as well as rate increases in riders recover our capital investments.

And higher AFUDC equity which increased earnings by $0.07 per share reflecting growth in capital investments. Partially offsetting these positive drivers were higher O&M expenses which decreased earnings by $0.10 per share increased G&A expense as a result of our capital investment program which reduced earnings by $0.10 per share and higher interest expenses, property taxes and other items combined to reduce earnings per share by $0.14.

Turning to sales, our weather adjusted electric sales increased 1.3% in 2018 reflecting strong economies in the states we serve and favorable sale to commercial and industrial customers as well as solid residential sales growth. Our electric sales growth was strongest at our SPS business with 4.1% growth driven by the oil and natural gas sector in the Permian Basin. Weather adjusted natural gas sales increased 2.4% in 2018 as a result of continued customer growth and increasing customer use largely in the commercial and industrial customer segment.

For 2019 we're anticipating relatively flat electric sales which reflects some specific declines in large customer usage more modest oil and natural gas driven growth and expectations of the lower use per customer in the residential sector. For natural gas we expect slightly positive sales in 2019 reflecting continued growth in C&I and residential loads.

Turning to expenses, O&M increased by $82 million or 3.6% reflecting additional spend for vegetation management and system maintenance due to the hot summer. Business system costs investments to improve and enhance business processes and customer service as well as damage prevention and remediation costs. We remain committed to our long-term objective of improving operating efficiencies in taking costs out of the business for the benefit of our customers.

But we continue to face rising costs in certain strategic areas including the impacts of adding incremental renewable generation, improving cyber-security and enhancing the customer experience. We are focused on delivering 2019 O&M expenses at levels that in aggregate are consistent with 2017.

Next, let me provide a quick regulatory update. We had a very busy and productive year in which we filed a result of multiple rate cases in addition to tax reform proceedings in all of our states. In 2019 we're planning to file a Colorado Electric Case in the spring. Rate cases in Texas and New Mexico in the summer and a Minnesota rate case in November and a Minnesota resource plan in the summer. We anticipate that new rates from these cases will go into effect in 2020. With that, I'll wrap-up.

In summary 2018 was another great year for Xcel Energy. We delivered ongoing earnings within or above our guidance range for the 14th consecutive year. We increased our dividend for the 15th straight year. We completed our equity issuance for the five year time period. We continue to execute on our steel-for-fuel strategy receiving regulatory approvals for new wind in Texas and New Mexico and South Dakota as well as the Colorado Energy Plan. We entered into agreement to acquire the 760 megawatt Mankato natural gas plant plant and buyout 70 megawatts of wind PPAs in Minnesota. We are well positioned to deliver on our 2019 ongoing earnings guidance range of $2.55 to $2.65 per share. Our 5% to 7% earnings growth objective and our 5% to 7% dividend growth objective.

This concludes our prepared remarks. And operator, we'll now take some questions.

Questions and Answers:

Operator

(Operator Instructions) We'll take our first question from Julien Dumoulin-Smith of Bank of America. Please go ahead.

Julien Dumoulin Smith -- Bank of America Merrill Lynch -- Analyst

Hi, good morning. Can you hear me?

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

Yes, you're a little faint, but good morning, Julien.

Julien Dumoulin Smith -- Bank of America Merrill Lynch -- Analyst

Excellent, well, I appreciate it. Good morning. Congratulation again on the results.

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

Thank you.

Julien Dumoulin Smith -- Bank of America Merrill Lynch -- Analyst

Maybe just to touch base a little bit, I know there's a litany of difference regulatory, more importantly legislative angles for this year. Can you touch base a little bit on them by specifically Texas, Colorado and the status in Minnesota, I know something just came up there as well to go through across the three?

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

Well, it's a whole bunch of them, not a lot of things -- there is a -- it's a pretty busy legislative agenda. So why don't I touch on a few that we're looking at, and if I miss one, please ask a follow-up question Julien. Starting in Texas of course, we're interested in the AMI legislation. That would basically allow non-ERCOT companies to get the same regulatory treatment that Arcot companies received concurrent recovery that's particularly important.

It's important to note there that in our CapEx, in the CapEx -- in the forecast period we anticipated about $80 million spend of AMI. So wouldn't increase the capital too much there Julien, but the recovery would be great. And we're optimistic about that. Over New Mexico of course we're following the RPS standard to see where that goes and watching the securitization bill as well. Moving up to Colorado, there is a number of different things proposed in Colorado.

The Securitization bill is one that we're following. Our thoughts there is -- it could be another tool in the toolbox if you will. That said some of the things that we've already accomplished leading the Clean Energy Transition while keeping those flat, taking care of our communities, something I'm particularly proud of, taking care of our employees, I think we've shown we can do it and achieve pretty remarkable results. That was always in the details, but if the securitization bills, it could become a valuable voluntary tool that'll be great. Minnesota there's just a number of things going around. Some of it addresses the Community Solar Gardens. Most of those are -- most of the legislation I would say in Minnesota is in earlier stages. So if there is something specific that you're interested in Minnesota just a follow-up. Did I catch everything you're interested in? Or did I miss anything Julien?

Julien Dumoulin Smith -- Bank of America Merrill Lynch -- Analyst

No. I think you did. I mean, I'm more curious as you think about some of these playing out, are there any specific capital items that -- coming out of these that you'd be focused on the Colorado or otherwise? But I know that there is a lot that's why I wanted to get the priorities from you if you will?

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

No. If any of those bills will drive much incremental capital I mean, I'm there is the EV storage bill that could be helpful to us and would allow us to do more with basically seating what I think it's going to be a very interesting development in the future and that's the electrification of transport so that could drive some CapEx. But a little early to put anything hard dollars on the table, Julien.

Julien Dumoulin Smith -- Bank of America Merrill Lynch -- Analyst

Great. And just a quick clarification, if I can. On the capital investment forecast that EEI, you provided an incremental case of $1 billion of additional capital, obviously you're changing around slides every update. Is there anything to read into that?

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

Well I mean, I think we shifted some things from '19 to '20, but we overall and we put the, the Mankato and the wind farm into our base forecast now. But the overall spend is still roughly the same I believe in that time frame. So in those outer years we are still looking to have -- achieve that incremental case which would grow rate base by 7%. And I think we can get there in a number of different ways. Of course we continue to look for opportunities to buy out PPAs and other opportunistic things. So that and the fact that if you look at history Julien the out years tend to be more capital intensive as the out years become forward years.

Julien Dumoulin Smith -- Bank of America Merrill Lynch -- Analyst

Excellent. Thanks for clarifying. All the best.

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

Thank you.

Operator

We'll now take our next question from Ali Agha of SunTrust. Please go ahead.

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

Good morning, Ali.

Ali Agha -- SunTrust Bank -- Analyst

Thank you. Good morning. First question, I wanted to just clarify Ben I think you mentioned you're expecting both the Mankato and the 70 megawatt buyout approval to happen, did you say by the third quarter? I just wanted to clarify when you're expecting that?

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

Yeah, well I think that's the good timeline to think about end of the second quarter or early third quarter.

Ali Agha -- SunTrust Bank -- Analyst

Okay. And with the $20.1 billion five year CapEx, that does equate to 6.5% rate base CAGR as you had previously shown us? Is that correct?

Robert Frenzel -- Executive Vice President and Chief Financial Officer

Correct.

Ali Agha -- SunTrust Bank -- Analyst

Okay. And to -- if I think about the long-term earnings goal aspiration of 5% to 7%. To hit the high end of that 7% does that assume that you would get that incremental billion dollars so that rate base could also be growing at 7%? Or do you think the high end growth rate can be achieved U.S. based on the CapEx as you laid out today?

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

No. I mean, I think the incremental CapEx would certainly be helpful, but there is other levers as well, improvement in regulatory outcomes specifically higher ROEs that would also be very helpful sales. We've got -- we had a good year in '18. We expected to be a little bit flatter in '19 and beyond, but if we got some pick up there that would be helpful. And of course we continue to look for a cost efficiencies in the business. So there is multiple levers of the incremental CapEx just being one.

Ali Agha -- SunTrust Bank -- Analyst

But and -- I guess, looked another way, Ben, I mean, assuming you do get that incremental CapEx. Should we -- we should not expect the 5% to 7% growth rate of change as a result of that, that would just make it easier to perhaps hit the higher end. Is that the way to think about it?

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

I mean we -- as you know we always -- we always take a look at that. But I mean I think what you just said is a good assumption.

Ali Agha -- SunTrust Bank -- Analyst

Okay. And my last question. Can you just I guess give a little more detail? As you mentioned, your electric load growth weather-normalized was north of 1% this -- in 2018 which you're assuming flat growth in '19? Can you just elaborate a little bit more on why you're expecting that to slowdown in '19 versus '18?

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

Ali we had good solid growth in 2018, lot of it was driven by large C&I demand in some oil and gas growth in our SPS business. We think that year-over-year we have a couple of discrete instances where we know we have lower demand from some of those C&I customers and we don't expect as aggressive growth in the oil and gas industry as we saw in '18. Obviously if we had upside as Ben mentioned to the sales growth in some of our expectations if we exceeded the flat forecast it would obviously be upside for 2019 earnings.

Ali Agha -- SunTrust Bank -- Analyst

I see. And lastly the DRIP program does that support of about $75 million sort of annual run rate for equity issuances is that good for modeling purposes?

Robert Frenzel -- Executive Vice President and Chief Financial Officer

Yeah, that's a 75% to 85% is a good number.

Ali Agha -- SunTrust Bank -- Analyst

Got you. Thank you.

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

Thanks, Ali.

Operator

Thank you. We'll now take our next question from Christopher Turnure of JPMorgan. Please go ahead.

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

Good morning.

Christopher Turnure -- JPMorgan -- Analyst

Good morning, guys. I wanted to follow-up on one of the earlier questions on the incremental capital plan. You mentioned PPA buyouts are one thing that you're looking at there. What's the next milestone that we might see in that process? And is there anything else that you're looking at there where we could see some some kind of information near term?

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

Well, I think, I think we've talked about the universe of opportunities and it's going to be, obviously, case by case. Our Corporate Development team's hard at work looking for those opportunities and making sure that the there's a good deal for the buyer and seller and just as importantly our customers. So there aren't really any time frames on that, but we are optimistic that there will be transactions to talk about in the future.

Christopher Turnure -- JPMorgan -- Analyst

Okay. And then, on the PSCo CapEx shift to 2019 from 2020, what was behind that? And then when we think about modeling for 2020 and feeding in the 500 megawatts of wind from the Colorado Energy Plan, how should we model that CapEx and rate base, and potentially earnings growth within the 2019 year?

Robert Frenzel -- Executive Vice President and Chief Financial Officer

Yeah, Chris its Bob. On the shift when we filed our CPCN for the Colorado Energy Plan and the wind farm there, we had originally contemplated that being a build-own-transfer where the developer would construct it and transfer it to us at COD. Through the process of the fourth quarter and negotiations with the developer, we opted to step-in, buy the land and development rights and build the project ourselves. So the shift in capital is just a pull forward from that wind from. So you see a incremental capital in 2019 in Colorado and then probably slightly less capital in '20 for the same wind farm.

Christopher Turnure -- JPMorgan -- Analyst

Got you. So I admit that between the two years really no total change, just a pull forward of the CapEx and potentially earnings power as well?

Robert Frenzel -- Executive Vice President and Chief Financial Officer

That's right. We do have CapEx pull forward AFUDC pull forward and slight interest expense pull forward, but in total in aggregate across the two years the same amount.

Christopher Turnure -- JPMorgan -- Analyst

Okay. Got you. And then, I guess, just kind of summarize that and the impact on 2019 that looks like a positive since you introduced guidance at third quarter earnings, you also have the Mankato project, you had wind repowering elsewhere, flat load growth assumption for the year and maybe a little bit of weather benefit at least to kickoff year in the first 30 days or so. Is that kind of the correct way to think about the puts and takes around guidance since you originally put out there?

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

Yes. You certainly talked about some of the upside levers actually across the entirety of the system for the month. We'll see how it comes and the upper Midwest is certainly very cold, but the rest of our jurisdiction and relatively benign in January. So...

It's going to be a 40 degrees here on Sunday, so. And that's above, not below

Robert Frenzel -- Executive Vice President and Chief Financial Officer

But yes, I think you had some of the positive sensitivities for the year.

Christopher Turnure -- JPMorgan -- Analyst

Okay. Great. Thanks, guys.

Operator

We'll now take our next question from Travis Miller of Morningstar.

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

Hi, Travis.

Travis Miller -- Morningstar -- Analyst

Good morning. Thank you. I just have bit of a higher-level strategy question. But I was wondering if you could give your take on the idea of the SPP transmission area of westward expansion, your thoughts there.

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

I'm not quite sure what your question is? I'm -- David, do you have? No?

Travis Miller -- Morningstar -- Analyst

Just -- the Mountain West Transmission Group, just discussions ...

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

Are you talking, you're talking more about Colorado now aren't you?

Travis Miller -- Morningstar -- Analyst

Yes, it'd be Colorado, and I believe, Texas -- part of your Western Texas would be involved.

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

So you probably know, Travis, that we looked at joining Mountain West. And at the end of the day the cost benefit analysis that really didn't pencil out for the benefit of our customers the way we were hoping it would. Doesn't mean we're not open to looking at those things in the future, but the math didn't work for us at least in this round.

Travis Miller -- Morningstar -- Analyst

Okay. Would renewables be involved in that? Is that a big part of that?

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

Well, it's certainly something we're looking at. One of the -- I'm sorry Travis. You go ahead. I cut you off.

Travis Miller -- Morningstar -- Analyst

No. Just -- you heard that correctly. The renewables for SPP in general. Is that part of the idea there?

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

The advantage of joining Mountain West would be potentially a larger footprint, which is good for renewable integration, certainly seeing the benefits of that with MISO in other regions. But again their costs and other trade-offs and when we -- when we added up the pros and the cons we thought it was not enough of a benefit for our customers to move forward with it. Again these things need to be periodically revisited and that's what we'll do.

Travis Miller -- Morningstar -- Analyst

Okay. Great. And then there's another high-level question. When you think about Minnesota and the programs you have there, you talked about the Renewable Connect and the EV pilot, obviously, the renewables on the system. What's your view in terms of how that state looks in your system and say three to five years as you get through the later part of your capital spending and even operating spending potentially?

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

The -- it's absolutely amazing how quickly renewables -- I think, it's by 2022 if not '21. Renewables will be the biggest source of energy across all of our eight states and that includes the upper Midwest in Minnesota. And I believe around the mid-20s we cross the line of renewables will be 50% of our energy mix. So it's absolutely phenomenal. And Travis as I mentioned in my prepared remarks this is also affordable it's creating a brand for the state which I think is helping to attract economic development. We're really excited about Google. I don't think that'll be in the last data center that we -- we're able to obtain. And I do think what we're doing with Leading the Clean Energy Transition can become our strategic asset for the state and our other states as well.

Travis Miller -- Morningstar -- Analyst

Okay. Great. I appreciate.

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

Thank you, Travis.

Operator

We'll now take our next question from Greg Gordon of Evercore. Please go ahead.

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

Greg.

Gregory Gordon -- Evercore ISI -- Analyst

Hi, guys, actually, you guys answered all my questions from prior analysts. So, I'll give you the time back. Thank you.

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

Thank you.

Robert Frenzel -- Executive Vice President and Chief Financial Officer

Thanks, Greg.

Operator

We'll now take our next question from Angie Storozynski of Macquarie. Please go ahead.

Angie Storozynski -- Macquarie -- Analyst

Thank you. So I have a really big picture question. So I'm looking at the slide from your EEI deck with the PPA roll off. And I heard you mentioned the potential early buyout of some of the PPAs and now given what we are witnessing in California now with this whole discussion about how expensive the renewable power PPAs have inflated customer bills. I'm just wondering if you can give us a sense, for instance, if there is any kind of rule of thumb, what kind of CapEx opportunity do you see as these PPAs roll off. And just -- just before I let you answer it, I'm just wondering if, is it the same type of rule of thumb that we have for O&M savings that some of the utilities mentioned that for instance $1 of O&M allows to spend anywhere between $6 and $7 of CapEx. Is the same rule of thumb applicable to those expiring PPAs? Thanks.

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

Well, I mean, the CapEx rule of thumb, it would hold true to that if you're buying out a PPA and putting in rate base, that's a good rule of thumb. We've got a large universe of power purchase agreements. There is a slide that you're probably looking at from the EEI deck I don't have it in front of me now. But we anticipate about 4000 megawatts of those PPAs with half of it in renewables and wind, I believe and the other half in fossil fuels might be something that we could look at.

Now whether or not we can pull the transaction again you got -- it has to work for us it has to work for the seller and it has to work for our customers. And we've had some success with that and we anticipate future success. But either way Angie that when these PPAs roll off most of them are at higher dollars than what the market prices would be now. And so that at the very least is going to help us with our very important objective of keeping those low and create headroom for investment at that leverage point that you're talking about.

So it's really kind of a version of steel-for-fuel if you will. So we don't have quite the same high-priced type PPAs that I think PGE might have. But the reality is energy prices have fallen over the last 10 years. So, as things we did 10 years ago roll off, it's going to create opportunities either for buying or at the very least keeping bills low for customers, all of which is good.

Angie Storozynski -- Macquarie -- Analyst

Okay. But I'm just going back to that slide, and again, I know you're not seeing it right now. I'm looking at it. So is it as simple as I'm just basically looking at the expiration of those PPAs and I see that you guys are showing us rough pricing of those PPAs. And so basically in the absence of that expense I multiplying that benefit by say six times and seven times and that's the incremental CapEx I can spend?

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

Bob, I don't think we'll quite will look at it that way.

Robert Frenzel -- Executive Vice President and Chief Financial Officer

When we think about the impact on customer bills and the headroom of that higher-priced PPAs rolling off create, it factors into how we think about our capital investment program. As Ben says we could invest in grid-like infrastructure to a significant degree and we talk about what replacement costs in the same deck we talk a little bit about what replacement cost for the grid would look like.

We're throttled by that usually at the pace of what we think that our customers would or should afford as we increase the capital plan. So fuel and purchase power reductions enable the company to invest in capital to the benefit of our customers while keeping bills low. So I don't know if we're using a specific multiplier there, Angie, but your thesis is correct.

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

Angie, I think the way you have to -- I think and may we could take some of those offline. But I think the way you have to look at it, is if it has a positive NPV for the customer we would and we can negotiate the transaction with that in mind then it's then the opportunity is to put that CapEx and you can probably do the math on 2,000 megs of wind and 2,000 megs of fossil where that would roughly be then you'd be putting that in rate base and you get the earnings power of it. That's the universe I think it's how we would look at it.

Angie Storozynski -- Macquarie -- Analyst

Okay. I understand. Just one follow-up. So can you give us a sense of you running into any issues with finding good sites for future wind farms and if you're close to reaching a point where solar is becoming cost-competitive or attractive versus incremental wind?

Robert Frenzel -- Executive Vice President and Chief Financial Officer

Yes, I mean, we've -- there are sites out there and we -- I think pretty good success in finding sites and I think the results speak for themselves there. And those sites will continue to be available. As far as solar becoming more competitive you're absolutely right. And I think the -- my thought Angie is solar is going to continue to see significant cost reductions more than offsetting, in my opinion, the fall off of the ITC. And I think that marries up really nicely with the actual coal plant retirements that we're looking at because as you know solar has far higher planning capacity than wind does. Wind is more like fuel, solar is kind of a mixture of the two. So I think the stars are aligning very well for us in that regard.

Angie Storozynski -- Macquarie -- Analyst

Great. Thank you.

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

Thank you, Angie.

Operator

We'll now take our next question from Jonathan Arnold of Deutsche Bank. Please go ahead.

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

Hi, John.

Jonathan Arnold -- Deutsche Bank -- Analyst

Good morning, guys.

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

Good morning.

Jonathan Arnold -- Deutsche Bank -- Analyst

Hello?

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

Can you hear us?

Jonathan Arnold -- Deutsche Bank -- Analyst

I can hear you. Could you hear me?

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

Yeah, we can hear you. Loud and clear.

Jonathan Arnold -- Deutsche Bank -- Analyst

Hello, can you hear me now?

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

We can hear you.

Jonathan Arnold -- Deutsche Bank -- Analyst

Okay. All right. I was -- we got kicked off the call for a little bit and then came back. So, I'm going to apologize to you, if you already answered this one.

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

Must been bad behavior, Jonathan

Jonathan Arnold -- Deutsche Bank -- Analyst

It's -- something was sensed. So O&M you're targeting flat to 2017 levels which means getting sort of backed down to just under $2.3 billion as I -- as I read the phase of the numbers. So and you've been saying for a while that you want to be flat through 2022 that kind of two-three level. So are you -- is the kind of reduction in '19 just kind of getting back down to plan having being a little over in '18? Or are you -- is it a precursor to may be starting to push for something that's a bit better than flat? Just curious if you can maybe speak to '18 number and then that guidance?

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

Jonathan one of the things to think about is we are adding a significant amount of new wind on to our system in advance of retiring any legacy generation. And that new wind causes O&M upward pressures. So, I would say that the balance of the base business as we continue to bend the cost curve on the base business while we observe the increasing O&M from the wind. So as we absorb lots of new generation we've had some cost pressures in O&M. I think generally keeping it flat is us spending the cost curve except for the new wind adds.

Jonathan Arnold -- Deutsche Bank -- Analyst

So is the forecast still like the $2.3 billion number throughout through the program? Or is that changed a little bit?

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

Yeah, I think that's a good -- still a good assumption. That's still our good guidance.

Jonathan Arnold -- Deutsche Bank -- Analyst

Okay. Great. That was it. Thank you.

Operator

We'll now take our next question from Paul Patterson of Glenrock Associates. Please go ahead.

Paul Patterson -- Glenrock Associates -- Analyst

Good morning.

Robert Frenzel -- Executive Vice President and Chief Financial Officer

Paul, how are you?

Paul Patterson -- Glenrock Associates -- Analyst

Good morning. So just one sort of quick question here. The -- can you talk a little bit on the use of securitization has being one of the tools in the toolbox you guys are indicating. What do mean by that in terms of just how we should think about if the legislation over the past, what might happen with that or how do you guys might use that?

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

Well in Colorado and in securitization in general, one there is two things it has to has. It has to be written in a way that technically you can actually do the bond programs off of it. And then, two, one of the things we've been looking at is things like utility ownership of the generation that's been securitized. If those things come together and remember in Colorado at least it's a voluntary tool than it might be something we look at. But I think the important thing as I mentioned Paul earlier is that we've achieved the goals and securitization through our own efforts.

And that includes community and employee taking care of both the communities and the employees and keeping our bills flat and that's what we've achieved. So we don't need securitization to keep doing that, but it -- if it's something that makes it even more tangible then we're all for it.

Paul Patterson -- Glenrock Associates -- Analyst

Okay. I guess, I'm still wondering in the case of New Mexico, I can see what people are sort of thinking about. I'm just sort of, like, is there any particular project or issue that securitization would address that I'm just missing? I apologize for just being dense on this.

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

No, no, no. Again that's why I think it's just that tool in the toolbox. I mean, it's down the road it might be something we would want to look at, but there isn't anything we are specifically thinking about today.

Paul Patterson -- Glenrock Associates -- Analyst

Okay. Great. That's it from me. Keep warm.

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

Thanks. Thank you.

Operator

Thank you. It appears there are no further questions at this time. So, Mr. Frenzel I'd like to turn the conference back to you for any additional or closing remarks.

Robert Frenzel -- Executive Vice President and Chief Financial Officer

Well as always thank you all for participating in our earnings call this morning. Please contact our Investor Relations team with any follow-up questions.

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

Thank you.

Operator

This concludes today's call. Thank you all for your participation. You may now disconnect.

Duration: 39 minutes

Call participants:

Paul Johnson -- Vice President of Investor Relations

Ben Fowke -- Chairman of the Board, President and Chief Executive Officer

Robert Frenzel -- Executive Vice President and Chief Financial Officer

Julien Dumoulin Smith -- Bank of America Merrill Lynch -- Analyst

Ali Agha -- SunTrust Bank -- Analyst

Christopher Turnure -- JPMorgan -- Analyst

Travis Miller -- Morningstar -- Analyst

Gregory Gordon -- Evercore ISI -- Analyst

Angie Storozynski -- Macquarie -- Analyst

Jonathan Arnold -- Deutsche Bank -- Analyst

Paul Patterson -- Glenrock Associates -- Analyst

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